Managing Your Health Insurance in Inflationary Times

The next era in providing health insurance as an employee benefit

Presented by:

Marcus Newman, CBCVice President, GCG Financial

Let’s Start With the New Law

Patient Protection and Affordable Care Act 2010

Changes Required by the New Law This Year (effective in 6 months)

Uninsured dependents will be eligible for coverage until age 26 even if married.

Pre-existing condition exclusions for enrollees under age 19 must be eliminated.

Lifetime limits in coverage are no longer allowable.

Annual limits on non-essential benefits are no longer allowable.

Eligibility rules favoring highly compensated employees are prohibited.

The implementation of this new law will usher in an era of unprecedented “hyper inflation” to group insurance for both small and mid-sized groups.

As if the past 10 years have not been marked by inflation of the cost of health insurance beyond what most employers can easily accept, we are already seeing a dramatic affect on the size of the renewal increases.

This presentation is designed to help you understand how to deal with rapidly rising costs. We will examine how traditional methods of cost control will help, and look as some creative strategies that can make a difference.

Is There Cause for Concern?

Health Insurance Cost Increase 2006-2007

2006 2007 Diferential5.00%

7.00%

9.00%

11.00%

13.00%

15.00%

17.00%

19.00%

21.00%

10.63%

11.78%

10.80%

Source: 2006 - 2007 Benefits Benchmark™ Survey – Chicagohealthinsurance.com

Differential

Health Insurance Cost Increase 2009-2010

2009 2010 Diferential5.00%

7.00%

9.00%

11.00%

13.00%

15.00%

17.00%

19.00%

21.00%

15.31%

18.39%

20.20%

Source: 2009 - 2010 Benefits Benchmark™ Survey – Chicagohealthinsurance.com

Differential

Just in case the last two slides didn’t make an impact

2006 2007 Diferential 2009 2010 Diferential0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

10.63%11.78% 10.80%

15.31%

18.39%

20.20%

DifferentialDifferential

Cost Control

Traditional Methods of Cost Control

• Alter Plan Design– Deductible– Co-Pays– Co-Insurance– Drug Coverage– Max Out of Pocket

• Change Cost Sharing– Pass on Cost– Alter Strategy

• Stop Offering Benefits

Law of Diminishing Returns

The Point of No Return

The Continued Degradation

of the Plan

Design Higher Deductible Exposure Higher Encounter Fees Higher Financial Exposure for Illness or Injury

Increased Negativity Regarding Quality Employee Distrust Relative to Benefit Decisions Loss of employees or potential employees

Altering Plan Design for Cost Control

2009 Survey ResultsChanged Insurance Companies24%

Increased Deductible 29% Increased Encounter Fees 20%Decreased Co-Insurance 13% Increased Max Out of Pocket 19%

Stopped Offering Health Insurance 5%

Source: 2009 Benefits Benchmark™ Survey – Chicagohealthinsurance.com

Employee Cost Sharing as Cost Control

2009 Survey ResultsIncreased Employee’s Share of the Premium 25%

MethodologyPercentage Relationship (i.e. 75/25)Flat Dollar Amount (i.e. $200 per employee)Based on Longevity (i.e. 1-3 yrs. 50% 4-6 yrs. 75%)

Source: 2009 Benefits Benchmark™ Survey – Chicagohealthinsurance.com

Legal Compliance May Require New Method of Employee Cost Sharing!

Effective 2014, employers with more than 50 full-time employees must offer a health plan to all full time employees

Employers offering “unaffordable” coverage will be assessed a $3000 penalty for each full-time employee receiving a federal subsidy (first 30 employees will be excluded.)

Coverage will be deemed “unaffordable” if the employee’s share of the premium exceeds 9.5% of the family income.

Source: Rebecca L. Dobbs, Esq. Smith Amundsen “How Employers Will Be Affected by Health Care Reform

Terminating Health Insurance as an Employee Benefit?

Starting in 2014, employers with at least 50 employees will be required to offer health insurance coverage.

Employers who do not offer coverage will be assessed an annual penalty of $2,000 for each employee not covered. In calculating the amount of the tax, the first 30 employees will be excluded.

Source: Jerry Geisel, businessinsurance.com/article 3/30/10 “Understanding key provisions in federal health care reform legislation”

Creative Strategy

Creative Plan Design Using

CONSUMERDRIVEN

HEALTHCARE

• Qualified High Deductible Health Plans– Standardized plan design

developed from the Federal Government

– Price points significantly below traditional PPO (-20 – -30%)

• Health Saving Accounts (HSA)

• Healthcare Reimbursement Arrangements (HRA)

• Employee Education

Insurance Quote

Traditional PPO Environment

Medical Underwriting

FINAL RATES

HRA Provides Leverage

FINAL RATESFINAL RATES

Traditional PPO Plan

$500

Doctor Co-Pay

PrescriptionDrug Co-Pay

Deductible

$30

$15 / $35 / $50

In NetworkCoverage

90%

In NetworkMax

$2,500

NOTES

Why do we have this plan at all? It is so old and expensive. I wonder if my employees even appreciate how benefit rich it really is. At my last job we didn’t have this kind of plan and nobody ever complained.

Proposed Insurance Plan (still a PPO)

$1500

Doctor Co-Pays

Prescription Drugs

Deductible

In NetworkCo-Insurance

Coverage

In NetworkMax Out of

Pocket

80% $3000

NOTES

• Removal of Co-Pay structure• Everything goes to deductible• Employee charged negotiated discounts

I am not sure that I like this because it seems like the employee would be on the hook for more money. Doctor visits and prescriptions … they might not like it.

Did he say 20-30% reductions in cost. I like that!!

Proposed HRA ProgramThe reimbursement program is designed to reduce the financial exposure to an

employee during the DEDUCTIBLE period of coverage only.

$500

$500

Deductible

$500

EMPLOYER POTENTIALREIMBURSEMENT

EMPLOYEE POTENTIALEXPOSURE

NOTES

• Limits deductible exposure to $500• Limits Employer reimbursement exposure to $1,000 • Employee max reduced to $2000• Creates 100% coverage environment for first $500

Oh! I get we use our savings on the premium to fund the reimbursements. We save money on all of our employees that are healthy.

I like it!!

What is the impact of the HRA?• Potential Impact on Employer - • Offers a High Deductible Health Plan.• Implements a reimbursement program for additional

employee exposure on “as incurred” basis only.• Premium savings offsets new financial risk.• Potential reduction in overall cost for each “healthy”

employee.

• Potential Impact on Employee - • Maintains quality of coverage• Benefits from 100% reimbursement of new exposure• Potentially slows rising costs and exposures

CAUTION!Implementing a CDHP will require additional employee

education! New and different financial exposures must be explained thoroughly and understood by employees and plan participants. These plans introduce a layer of complexity and

administration that most employees are unfamiliar with. Employee good will relies heavily on the employer’s ability to

educate participating employees.

Some plans may be more attractive to highly compensated employees. Other plans may be more attractive to the

employees on the lower end of the pay scale.

GOOD NEWS!H.S.A. and H.R.A. plans may be available simultaneously please

check with your insurance broker for details.

10 Things You Might Not Know about Health Insurance

1. Market Segmentation

• Unique market segments determine programs available to each business owner

• 2 TO 50 EMPLOYEES (SEHIRA)

• 51 TO 200 EMPLOYEES(MIDDLE MARKET)

• 201+ EMPLOYEES(LARGE GROUP)

2. SEHIRA = Full Underwriting

• 2-50 Eligible Employees• Manual Rates Filed with State• Full Medical Underwriting

Required• 67% Increase Worst Case• Medical Load From Year to

Year Limited to 27% (Renewals Can Be

Higher)

3. Middle Market (51-200)is the Most Challenging

• Underwriting moving to individual questionnaires instead of group

• Typically too small to try self funding

• Experience plays larger role in renewal pricing

4. Large Market – Self Funding?

• Large number of options available both in terms of insurance companies and plan design

• Experience becomes key component to pricing

• Wellness programs need to be an integral part of the benefits package

5. More Brokers ≠ Better Pricing

• Do you want a company to have 3 CPA’s prepare a tax return?

• Companies need to picka partner to work with basedon capabilities.

• Carriers are reluctant to be competitive when multiple brokers are working a case.

6. CDHP’s are Mainstream!

• CDHP will potentially account for $88 billion in 2007 – a six-fold increase since 2005.

• 25% of employers currently offer a CDHP option as at least a choice for employees; this is expected to double in the near future. Choice of broker should be based on services offered, client lead and support team and price

• Blue Cross Blue Shield thinks that 20-25% of their coverage will be in CDHP by the end of 2010

7. Employees Want Wellness Programs

• Employers are making an effort to communicate the importance of being healthy to their employees

• Employees are okay with having incentives be a part of their wellness program

• Programs include»Smoking Cessation»Weight loss»On site wellness

screenings

8. Renewal Process does not begin at renewal notice

• 100 Days before the next renewal• Be prepared to negotiate with

incumbent carrier. Be prepared to change companies.

• Maximize your relationship with your insurance company• Annual renewal does not mean you

should treat it as a yearly “purchase”

9. Employers Underestimate Value of Communication

• 82% of employees believe they are effective health care consumers – only 36% of employers agree

• 31% of employees think that employers communicate effectively–70% of employers believe that they do

• Good communication with lesser program is better than poor communication with more expensive program

10. There is a Healthcare CHANGE Happening in Washington

• Healthcare Reform vs. Health Insurance Reform

• Viable Alternative to Employer Sponsored Plans?

• Affordability – Consumer, Employer, Tax Payer, Government Assistance CHANGE

MARCUS NEWMAN, CBC

Thank you very much for your time.

Questions?

Phone: 847.457.3058 Email: Marcus.Newman@gcgfinancial.com